Mere Negotiations Will Not Postpone Cause Of Action For The Purpose Of Limitation- SC While Holding Suit As "Hopelessly Time-Barred"
A Supreme Court Bench of Chief Justice Dr DY Chandrachud and Justice JB Pardiwala has denied relief to a Switzerland-based company by holding that its claim was hopelessly time-barred. It was further held that mere negotiations will not postpone the “cause of action” for the purpose of limitation.
Counsel Dua appeared for the petitioner, while ASG KM Nataraj appeared for the State.
In this case, a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 was filed at the instance of a company based in Switzerland and engaged in the business of manufacturing of arms etc., praying for appointment of an arbitrator for the adjudication of disputes and claims arising out of a contract executed with the Government of India in its Ministry of Defence.
The grievance of the petitioner revolved around the deduction of liquidated damages by encashment of a bank guarantee. The petitioner issued a notice invoking arbitration in accordance with the contract. However, the State contended that the claim was time-barred.
The Apex Court heard the parties and then analysed a catena of judgments.
Subsequently, the Court observed that "Whether any particular facts constitute a cause of action has to be determined with reference to the facts of each case and with reference to, the substance, rather than the form of the action. If an infringement of a right happens at a particular time, the whole cause of action will be said to have arisen then and there. In such a case, it is not open to a party to sit tight and not to file an application for settlement of dispute of his right, which had been infringed, within the time provided by the Limitation Act, and, allow his right to be extinguished by lapse of time, and thereafter, to wait for another cause of action and then file an application under Section 11 of the Act 1996 for establishment of his right which was not then alive, and, which had been long extinguished because, in such a case, such an application would mean an application for revival of a right, which had long been extinguished under the Act 1963 and is, therefore, dead for all purposes. Such proceedings would not be maintainable and would obviously be met by the plea of limitation under Article 137 of the Act 1963."
Subsequently, the Court took the considered view that "Negotiations may continue even for a period of ten years or twenty years after the cause of action had arisen. Mere negotiations will not postpone the “cause of action” for the purpose of limitation. The Legislature has prescribed a limit of three years for the enforcement of a claim and this statutory time period cannot be defeated on the ground that the parties were negotiating".
In light of the same, the Court observed that the case was clearly and undoubtedly one of a hopelessly barred claim and that the petitioner, by its conduct, slept over its right for more than five years. Therefore, the petition was rejected.
Cause Title: M/s B And T AG v. Ministry of Defence
